Philip Hammond has said he would not win the race to become the next prime minister, admitting he is a “divisive” figure in the Tory party.

The Chancellor said he had not thrown his hat in the ring as many party members disagree with his stance on the UK’s future relationship with the European Union.

His comments came as he warned leadership hopefuls against making “radical” tax cuts and slashing red tape, and cautioned against “reckless” solutions offered by “populists”.

He said he would not win the leadership race because “the electorate for the leadership of the Conservative Party is the membership of the Conservative Party. And I know something about the paid-up membership”.

(PA Graphics)

“I know that the views of that group are, by a significant majority, Eurosceptic. I know that many of them do not agree with the stance that I have taken to our future relationship with the European Union,” he told LBC radio.

“It’s very important in this competition that there are candidates expressing clearly the view that we must have a negotiated settlement and that we must have a close future trading partnership with the European Union.

“But I think it’s probably better that somebody less divisive within the party than me is making those arguments.”

Mr Hammond, in a speech to the Resolution Foundation think tank in Westminster on Thursday morning, said one of the central tasks for the next prime minister would be to demonstrate the benefits of a “properly regulated market economy”.

Philip Hammond at the Resolution Foundation (Jonathan Brady/PA)

Leadership contenders are already setting out plans to cut taxes in an effort to appeal to the grassroots Tory members who will decide on the next occupant of Number 10.

Dominic Raab has pledged to cut income tax by a penny a year – 5p over the course of a parliament to just 15p in the pound for the basic rate – which critics have claimed would cost £25 billion.

Foreign Secretary Jeremy Hunt has also adopted a tax-cutting approach, although he suggested slashing corporation tax to Irish levels of 12.5%.

The Chancellor said: “Whoever the next prime minister is, one of his or her central tasks will be to show a new and sometimes sceptical generation that a properly regulated market economy remains the most powerful force available to us for unlocking aspiration and raising living standards.

On the right the argument for radical tax cuts, deregulation and smaller government is gaining ground.
Philip Hammond

“And bold, decisive action on the national living wage, sustainably delivered, will be an important demonstration of the power of that argument and a necessary step to rebuild confidence in the politics of the centre ground.

“Because that centre ground is under threat. On the left, the Labour Party characterises business as the real enemy. On the right, the argument for radical tax cuts, deregulation and smaller government is gaining ground, just as our population demographics are making them harder to do.

“And as we look to rebuild the case for centre ground politics we should take a bold step in writing the next chapter in the story of statutory minimum wages in the UK.

“A story which began under the Labour government of 1997 – but which took a giant step forward under the Conservative government in 2016 – so that we demonstrate once again that the well-regulated market delivers for all our people.”

He said a gap had opened up in Britain and other developed countries between the “theory of how a market economy and free trade creates and distributes wealth and the reality experienced by many ordinary people”.

“We ignore that gap at our peril because if we do not address it, it will be filled with the reckless promises of the populists,” he warned. “But that doesn’t mean we should abandon our economic model.

“So, for those like me who believe passionately that harnessing the power of market economics is the only way to deliver progress… it is imperative that we take decisive action to show that the regulated market model can deliver higher wages and higher living standards.”

Mr Hammond earlier hinted that he would support a second referendum if Parliament cannot resolve Brexit.

He told BBC Radio 4’s Today programme: “If we do get to the point where Parliament does admit that it cannot resolve the situation, then it will have to be remitted back to the people.

“I am not sure that a general election can resolve the question for the simple reason that both the main political parties are divided on the issues. This is a division that runs not between the parties, but through the parties.

“We need a period of calm now before contemplating the possibility of a general election.

“My strong preference is for Parliament to resolve this but if Parliament can’t resolve it, then Parliament will have to decide how we remit it back to the people, whether it is in the form of a general election, or a referendum.”